Question (5.

3)
(a) Traditional break-even chart
Fixed cost = $15 000
Total cost = $25 000 + $15 000 = $40 000
Sales value = $50 000

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(b) Contribution break-even chart
Variable cost - $25 000
Total cost - $25 000 + $15 000 = $40 000
Sales value - $50 000

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(c) Profit-volume chart
Sale units - 5 000 units (or) $50 000
Sales profit - $10 000
Fixed cost - $15 000 (Maximum loss when sales level zero)

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Question (5.6)
Contribution per unit = $12.95 - $5.45 = $7.5 per unit

Fixed cost $120 000

(a) Break-even point (units) = = = 16 000 units
Contribution per unit $7.5

Break-even point ($) = Break-even point (units) x selling price

= 16 000 units x $12.95
= $207 200

(b) Margin of safety (units) = Sales units - Break-even point (units)

= 25 000 units - 16 000 units
= 9 000 units
Margin of safety (units) 9 000 units
Margin of safety (%) = x 100 = x 100 = 36%
Sales units 25 000 units

(c) Required sales units to earn target profit $42 000

Fixed cost + Target profit $120 000 + $42 000
= = = 21 600 units
Contribution per unit $7.5

Revised selling price = $12.95 - $1.5 = $11.45 per unit

Revised contribution per unit = $11.45 - $5.45 = $6.00 per unit

(d) Profit-volume chart

Original price New price
Sales units 25 000 25 000
Total contribution $187 500 $150 000
(-) Fixed cost ($120 000) ($120 000)
Net profit $67 500 $30 000
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Fixed cost (Maximum loss) $120 000 $120 000

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Question (5.7)
Option One Option Two
Selling price $12.50 $9.95
(-) Variable cost per unit ($4.70) ($4.50)
Contribution per unit $7.80 $5.45

(a) Profit statement for 10 000 units using Option One

Total contribution ($7.80 x 10 000) $78 000
(-) Fixed cost ($50 700)
Net profit $27 300

(b) Required sales units to earn target profit $27 300 under Option Two
Fixed cost + Target profit $55 590 + $27 300
= = = 15 209 units
Contribution per unit $5.45

Fixed cost $55 590

(c) Break-even point (units) (option two) = = = 10 200 units
Contribution per unit $5.45

(d) Option One Option Two

Sales units 10 000 16 000
(-) Break-even point (units) (6 500) (10 200)
Margin of safety (units) 3 500 5 800

Margin of safety (units)

Margin of safety (%) = x 100
Sales units
3 500
Option One = x 100 = 35%
10 000
5 800
Option Two = x 100 = 36.25%
16 000
(e) Page (57), Question (23)
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